Good investor, bad investor: which will you be?
You’ve probably thought about investing, and why not? You work hard for your money, so there’s no shame in wanting your money to work harder for you. But what separates the good investors from the bad investors, other than how much money they wind up with? How do you know what makes a good investment when some people seem to lose money no matter what? Here are some tips on how to become one of the better investors, so that you can increase your resources without increasing your risk.
1. You have to know where the goal is in order to score
Do you know what you want out of your investments? Do you have a number (whether a total or a growth percentage) in mind? Do you have a date you’d like to reach that goal by? If you want to make sure you’re heading in the right direction at the right speed, you need to sit down and puzzle out the details. Have a think about what rate of growth you’re looking for, and do your research to see if that’s reasonable. There are lots of different ways to invest, but typically, the higher the potential returns, the riskier the investment. Setting your ideal rate of return in stone will not only give you a goal, but it will also remind you to cool your jets a little in the future if you’re prone to getting carried away in the moment. Looking back on what you wanted, rather than what you could possibly get in the future, will help you keep a level head.
2. Understand what the market does, not what you think it might do
Have you ever known what your friend was going to do before they did? That’s what happens when you understand something well: this can help with investments as well. If you know about computers, you might spend your weekends reading about hardware innovations. When a company releases technical specifications for a new product, you’ll be better informed than your workmates as to whether or not they should buy whatever the new thing is. The same goes for investments: there are likely things you’re interested in that other people aren’t, so you may as well bring that specialist knowledge to your investments. You don’t need to chase the big money or whatever trends are making the news. Just find and follow something you understand. Watch how news releases affect companies that operate in that area. If you don’t have interests that are likely to show up on the market, pick a sector and see how news releases and innovations affect prices.
3. Always do your research before investing
This goes pretty hand-in-hand with number two above, but it bears repeating and clarifying. Whether it’s something you care about, or something you just want to invest in, you must read as much as you can. You need to know what has made those investments rise and fall in the past. You need to know about any supply issues that have impacted prices, as well as any broader market patterns. Not only will this help you generally understand broader economic forces, but it will help you train your eye for those scenarios in the future. They say that those who fail to learn from history are destined to repeat it, so make sure you don’t use your money to learn a lesson you could have learned for free!
4. Start small and share the love
Walk before you run: investment isn’t a quick strategy to get rich. For every person who made a lucky big trade, there were countless others who weren’t so fortunate. While you’re still learning the ropes, make sure you start slow so that if something does go wrong, you don’t lose everything. The same thing goes for diversifying your investments. If you put all your money in one spot, you run the risk of losing it all at once. If you’re thinking about stocks, don’t put all your money in the same company, or even the same industry. If you’re buying property, don’t buy it all in the same area, and think about diversity in the property type and audience as well. Broader social trends are harder to predict, but by spreading your efforts, you should minimise any potential loss. Of course, it means that if one sector explodes, you’ll feel bad because you could have capitalised on it more, but it’s better to have a small regret than a huge loss.
What makes a good investor is steadiness and a clear goal. Time irons out a lot of dips in a lot of markets, so you need to be willing to sit through the lower times in order to reach the more profitable ones. Do your research, and have faith that the decisions you make are informed, and will get you to where you want to go. Be aware that, as with any active investment, you’ll need to keep your eyes on them, but by doing the work upfront, you should prevent panic in the future.